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By Section 212(1) of the Housing Act 2004 ("the Act") the "appropriate national authority" (being, in England, the Secretary of State, and in Wales, the National Assembly for Wales) is required to make arrangements for securing that one or more deposit schemes are available for the purpose of safeguarding tenancy deposits paid in connection with shorthold tenancies. A "shorthold tenancy" is defined in section 212(8) of the Act as being an assured shorthold tenancy within the meaning of Chapter 2 of Part 1 of the Housing Act 1988.
A scheme may be a custodial scheme, as defined in paragraph 1(2) of Schedule 10 to the Act ("the Schedule"), or an insurance scheme, as defined in paragraph 1(3) of the Schedule. At the end of a tenancy a deposit that has been secured in a custodial scheme must be paid in accordance with paragraph 4 of the Schedule. Where the scheme provides for any amount paid in accordance with paragraph 4 of the Schedule to be paid with interest, the appropriate national authority, under paragraph 3(5) of the Schedule, may specify at what rate of interest it is to be paid.
This Order, which applies to England and Wales, specifies that for the purposes of paragraph 3(5) of the Schedule, the rate of interest is a rate equivalent to the base rate of the Bank of England less 2.32 percent.
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